Global import barriers fall as food prices trump Doha

Trade matters: A file photo of minister for commerce and industry Kamal Nath with US trade representative Susan Schwab (right).

Updated: Mon, Apr 14 2008. 10 19 PM IST

Washington: The surge in world food prices is accomplishing what seven years of trade talks haven’t: knocking down import barriers.

The Doha round of global trade negotiations has been stalled since 2001 because developing nations have refused to lower import tariffs that protect their farmers and rich countries won’t give up farm-price supports.

Trade matters: A file photo of minister for commerce and industry Kamal Nath with US trade representative Susan Schwab (right).

Now, import duties are being slashed from Brazil to Burkina Faso in response to prices that the World Bank says have risen 83% the past three years; subsidies in the US and Europe are falling.

“Food prices have done for import liberalization what Doha wouldn’t have been able to achieve for a very long time,” says Arvind Subramanian, a trade expert at the Peterson Institute for International Economics in Washington.

Since early 2007, when cereal prices began rising, developing nations have taken a raft of measures to increase imports.

India removed a 36% import tariff on wheat flour, and Indonesia eliminated duties on wheat and soya beans. Peru jettisoned tariffs on wheat and corn. Burkina Faso suspended import taxes on four food staples in February after riots in the West African nation over price increases. And Brazil may remove its 10% tax on wheat imports. In all, at least 24 nations have reduced duties and value-added taxes, according to a 9 April World Bank report.

In the US, farm subsidies are expected to fall below $8 billion (Rs31,920 crore) this year from $13 billion in 2005, says David Orden, a senior research fellow at the International Food Policy Research Institute. European Union support of farmers fell by €10 billion (Rs63,100 crore) from 2004 to 2006, according to the Organization for Economic Cooperation and Development in Paris.

“The prospect that food prices will remain relatively high in the future helps the US accept lower levels of subsidies,” says Carlos Marcio Cozendey, economic department chief at Brazil’s foreign affairs office. Brazil and India have led a group of nations holding up the Doha round because of US and European farm subsidies.

The current round of World Trade Organization talks was launched in Doha, Qatar, in 2001. The talks among the 151 WTO members have already collapsed twice, in large part over differences on how to cut farm subsidies and tariffs.

Trade talks are preparing to try again for a broad agreement in Geneva in the next month or two. A deal might add $100 billion a year to a weakening global economy by spurring trade and growth, according to the World Bank.

“We are once again trying to take a run at getting this elusive breakthrough,” US trade representative Susan Schwab told a congressional committee on 9 April.

High food prices may help, says Gawain Kripke, a senior policy adviser at Oxfam America. “It is having obvious benefits in terms of subsidy payments and import tariffs,” says Kripke, who tracks agriculture and trade issues for the anti-poverty organization.

After years of protecting domestic production of food staples by penalizing imports, places such as Indonesia and the Philippines, the world’s largest rice importer, are suddenly welcoming American rice, says Song Seng-Wun, an economist at CIMB-GK Research in Singapore.

“The stomach moves things faster than trade talks around a table,” says Song. “Asian governments now have no choice but to open up their most sensitive industries like agriculture. Suddenly, protection isn’t an issue anymore.”

Philippine agriculture secretary Arthur Yap urged China, Japan, India and other Asian nations to convene an emergency meeting on the food crisis, with the gathering likely to be held in April or May. In China, the government said it will increase subsidies paid to rice and corn farmers to encourage production. In the US and EU, subsidies are automatically coming down because farm supports are based on world prices. US food prices have increased 6.5% this year.

While food inflation may increase the chances for a new global agreement, it is still a longshot, trade analysts say. And the effects of higher food prices aren’t all positive from a free-trade perspective: To husband their resources, many nations are restricting exports.

In January, Malaysia said it will create a new agency to stock up on oil, rice and other items. Singapore and Sri Lanka are stockpiling rice. The government of the Philippines asked fast-food chains to serve half-portions of rice.

The surge in food prices includes everything from cereals such as wheat, which is up 181% over the past 36 months, and rice, which is double its year-ago price, to corn, soya beans, sugar and edible oils.

The increases are the result of growing demand in nations such as China and India. Another factor may be the diversion of crops to biofuels. High energy prices, which encourage biofuel production, also raise the cost of fertilizers and food transportation. Bad weather, including a drought in Australia, has contributed to this price rise.

According to research by Merrill Lynch and Co., global food production grew at a slower pace than the world population in 2006, the first time that has happened in at least 15 years.

It’s “classic Malthusian economics in the form of population gains beginning to outstrip the available food supply,” Merrill Lynch economist David Rosenberg wrote in a February report, referring to English economist Thomas Malthus’ theory that populations tend to outgrow food production, causing suffering.